Transit woes may lead to bifurcated credit landscape


As transit agencies across the country face a dreaded fiscal cliff when federal stimulus dollars dry up, those agencies that win permanent revenue from their states and local governments will boost their profile while others will see their credit erode.

That’s the view of experts who spoke at a transit panel Wednesday at The Bond Buyer’s Infrastructure conference in Chicago.

“The farebox credit is sort of history,” said S&P Global Ratings analyst Nora Wittstruck, referring to the inability of farebox revenue to support transit in a post-pandemic age of weak ridership.

“Our view is that there’s going to be this divergence going forward,” Wittstruck said. Those agencies “that can evolve, will, and that’s how they will save their credit profile.”

The transit credit landscape may become bifurcated as some agencies win additional revenue support from state and local governments and others do not, said S&P Global Ratings analyst Nora Wittstruck at a The Bond Buyer’s infrastructure conference on Sept. 13.

Transit agencies won a total of $70 billion of federal stimulus funds in 2020 and 2021 to support service when ridership evaporated during the pandemic. The Infrastructure Investment and Jobs Act allocated an additional $18 billion annually for public transportation programs through 2026, according to the Congressional Budget Office.

Many agencies have spent nearly all of the stimulus dollars to plug operational shortfalls, and now face a fiscal cliff when the final dollars dry up. Meanwhile, persistent work-from-home trends have diminished ridership levels compared to before the pandemic. That’s led many transit advocates and agencies to turn to states and local governments for support for operations and capital budgets.

The way in which transit agencies attempt to solve the revenue problems is crucial, said Patrick Landers, treasurer of the Massachusetts Bay Transportation Authority.

“There’s nothing as dangerous as the wrong solution to a real problem,” Landers said. “I think we need a grand solution to the transit problem here in Massachusetts.”

New Democratic Gov. Maura Healey, who took office in January, should take a fresh look at “broader ways to generate revenue,” he said.

The New York Metropolitan Transportation Authority’s move to implement congestion pricing to raise money marks one idea for generating revenue, panelists said. But while congestion pricing will mean more money for capital projects, it likely won’t do much to boost ridership numbers, panelists said.

The MTA was “well over capacity” before the pandemic and, at 83% of pre-pandemic ridership right now, is “where they should be,” Wittstruck said. The congestion pricing program is “just another option to fund capital.”

Most urban transit agencies like the Chicago Transit Authority face problems with crime, either perception or reality, which keeps some potential riders away, panelists said. The problem is “a critical issue” for the CTA, said Chief Financial Officer, Jeremy Fine. The authority has boosted its security budget to $41 million in 2023, up from $14 million, Fine said.

“We have seen the actual crime statistics continue to drop, but we have invested substantial amounts of additional funding for CTA security measures,” Fine said.

Illinois’ Regional Transit Authority, which has fiscal oversight of the CTA, Metra commuter rail, and Pace suburban bus service, faces a $730 million budget hole by 2026, said the RTA’s Executive Director, Leanne Redden.

The Illinois General Assembly “has chronically underfunded us for decades,” Redden said. A statewide sales tax brings stability, but “once we run out of federal relief money, there is that gap we have to address,” she said.

The RTA has been working with state lawmakers on a fiscal fix

On the local side, Chicago’s willingness to support the CTA’s $3.6 billion, two-mile extension of the Red Line train marks an example of how value transfer can be used to support transit, said David Narefsky, partner at Mayer Brown.

Chicago set up a tax increment financing district in an area far north of the actual extension, Narefsky noted.

“A significant portion of the value will come from a higher-income, wealthier portion of the city,” Narefsky.

Agencies should view the fiscal cliff crisis as an opportunity, Fine said.

“Now is the time to right some of the funding concerns we’ve had for quite awhile and get us on track moving forward,” he added.